One of the World’s Richest Men Knows Why Silicon Valley Bank Really Failed: ‘People on iPhones’

since autumn Silicon Valley Bank, Experts | And market observer have openly worried that the collapse of this institution along with signature bank and Silvergate Bank, could lead to contagion that would spread to the rest of the financial sector. But the CEO of a leading private equity group doesn’t think that will happen because of the specific tech frenzy surrounding SVB.

“This crisis was caused by people on iPhones and other devices hearing on social media that a bank might be in trouble.” Black Stone CEO Steve Schwarzman said in an interview with Bloomberg on Thursday in Tokyo. “They responded with huge withdrawals in a very short time and brought down the bank.”

Schwarzman, whose company manages $975 billion Value of Assets, adding that the current banking turmoil is different from a “traditional crisis”. In SVB’s case, instead of holding risky assets, they had an imbalance of otherwise very safe bond assets that matured over an extended period of time. When the Fed raised interest rates, the value of these bonds fell, but would have been repaid in time had it not been for the bank run.

“We only have a temporary problem with rising interest rates and we have a deposit problem caused by technology. And those are both solvable problems for the vast majority of banks,” Schwarzman said.

However, the billionaire said it’s still important for banks and financial institutions to understand how the crisis could affect them.

“It’s important to understand that the risk from deposits is really confined to the banking system and has almost nothing to do with other types of financial institutions that aren’t required to give people their money right away,” Schwarzman said.

Blackstone officials declined to comment further wealth to Schwarzman’s comments.

The collapse of SVB earlier this month rocked shares in several regional banks including First Republic and PacWest BanCorp. Days later, Credit Suisse wobbled and was quickly bought up by UBS 3 billion dollarsa fraction of what it was valued just a week earlier, adding to fears of a widespread banking crisis.

said Bill Ackman of Pershing Square he was worried about “a runaway risk of financial contagion,” while economist Mohamed El-Erian said that while the failed banks themselves would not trigger a domino effect on other institutions, an erosion of confidence in banking would “economic contagion.” For now, the sale of SVB to First Citizens Bank earlier this week seems to have at least reassured investors for the moment.

Schwarzman isn’t alone in believing that social media and smart devices have accelerated the SVB crisis. Jane Fraser, chief executive of Citigroup, said the technology was a complete “game changer” in spreading the panic and rumor that led to the $42 billion bank run on SVB.

“There were a few tweets and then this thing went down a lot faster than it historically happened. And honestly, I think the regulators did a good job of reacting very quickly because you usually have more time to react,” Fraser said last week in an interview.

And other market watchers have theorized that social media aspect of the bank run requires a complete rethink in the financial sector.

“The fact that humans can communicate so much faster…[has] has changed the dynamics of bank runs and potentially changed the way we need to think about liquidity risk management,” said Todd Baker, senior fellow at Columbia University’s Richmond Center. according to Reuters.

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